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European QE Expectations Drive Today's Rally


Today's financial recap and tomorrow's financial outlook.

Much of today's theme was driven by further expectations of more quantitative easing by the ECB. Following President Mario Draghi's speech at the Jackson Hole symposium, a few strategists moved forward their calls for more interest rate hikes and raised the possibility for asset purchases to near 100%. Action is expected as soon as the upcoming meeting next Thursday. Large-scale asset purchases could start at the beginning of next year should inflation expectations continue to be very low.

The German DAX posted strong gains today as the Euro continued to fall versus other major currencies. The French CAC posted the largest risk-adjusted gain in Europe today even though the country's entire cabinet resigned, and President Hollande's approval rating dropped to 17%, a record low. The spread between the German and Japanese 5-year notes narrowed to as little as 1bp today.

US markets continued to their upward march again today, tacking on their ninth day of gains out of the last 12. The S&P 500 (SPX) eclipsed the 2000 level for the first time in history. The Nasdaq-100 (NDX) is approaching its highest close since August 2000 at 4099.3. Financial stocks and energy stocks led the day's gains with all 10 of the basic S&P sectors finishing positive. Gas-producing companies were among the top performers in the energy space.

New home sales in July posted their second straight month of slower activity after June's figure was revised higher. An annualized 412,000 new contracts were signed in July with supply on the market rising to 205K or 6 months of inventory, the highest it has been since late-2011. Economists had expected sales of 430K.

Tomorrow's Financial Outlook

The major economic report tomorrow is July durable and capital goods orders. The capital goods shipments segment is a good barometer of capital expenditures by corporations in the US. Durable goods orders are expected to rise 8.0% from the prior month due to a very large aircraft order for Boeing (BA). After excluding these orders, durables are expected to rise by 0.5%. Capital goods shipments are expected to rise by 0.7% after orders rose 1.4% in June.

Also to be reported are the S&P/Case Shiller and FHFA home prices from June, both of which are expected to show a further slowing level of increase. Lastly, the Conference Board consumer confidence index for August will be reported in the late morning.

The only global economic report of note overnight is China's gauge of leading economic indicators for July.

Three major US companies are scheduled to report earnings tomorrow. They are Best Buy (BBY), Bob Evans Farms (BOBE), and Sanderson Farms (SAFM). Food prices have surged higher due to a variety of global droughts and diseases so it will be interesting to see what the the latter two companies have to say.

Twitter: @Minyanville

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